Thursday, September 25, 2008


A pertinent comment on my last post about the feasibility of retiring on Rs.1 crore of savings, came from Manish. He raised the issue of whether Rs.75,000 per month of expenses is a realistic figure for someone preparing to retire on 1 cr.

I have considered the hypothetical figure of Rs.75000 per month of expenses inclusive of EMI payments on house, car etc. Secondly and more importantly the figure of Rs.75,000 p.m. takes into account the aspirational effect of living. Simply put it means that with time a person does not feel satisfied with his current status of consumption, but aspires for upgrades in terms of categories. As an example, our investor might well be happy with a sub-compact car at present. But when the time comes for replacing his current car, he might aspire for a mid size sedan. So even if his current expenses are lower than Rs.75,000, his aspiration for better products and a higher standard of living would keep on increasing his living costs beyond the projected inflation rate, thereby acting as a self induced super inflation.

This only goes to show that one cannot take one's current expenditure and scale it up by simply adjusting for inflation to arrive at a projected expenditure figure, but has to account for the intangible human need for a better standard of living, in calculating what he might require several years later. Our investor could well have an expenditure of Rs.50,000 p.m. at present, and he would be satisfied that he can do very well on a savings corpus of Rs.1 cr, but he has failed to account for the joker in the pack which could put paid to all his well laid plans. To account for this I have assumed the higher figure of Rs.75,000 in my working.


Anonymous said...

What is the point of writing such big paragraphs if you have not answered the question. So 75000/month will take him only 11 years without considering the interests he makes on his capital. So if he retires at 58 then the money would last until 69, which is not enough. If the person is healthy and life expectancy is around 85 then I would say 1 cr is nothing. So keep saving more is the answer to retire happily or keeping working after the retirement to earn side incomes. Thanks.


Interesting advice.